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Actually, our mechanism is a market, it&#8217-s just not a stock market. We use an automated market maker to efficiently price every bet, adjust crowd beliefs, and price an interim sell. In essence, participants trade binary spreads with the market maker.

Because our new version was not yet market-ready, I did not enter the markets vs. non-markets debate when you were having it some months ago. However, among other reasons, we avoid collective forecasting because it is too similar to collaborative forecasting, which is key in supply chain. Honestly, when all is said and done, our clients care not what the mechanism is. They care that we can efficiently gather team intelligence and translate it into actionable business intelligence. That is our mission.

As Emile points out, in 2003 I started experimenting with (and empirically validating) alternatives to the traditional stock-market metaphor that will be more viable in corporate settings. We found the level of confusion and lack of interest in the usual fare led to a death spiral of disuse and inaccuracy. BRAIN was a first stake in the ground in prediction market mechanism design with usability as a fundamental premise.

When I joined Crowdcast (then Xpree) in August of 2008, Mat and the team already recognized the confusion around, and consequent poor adoption of, the MSR mechanism. The number of messages I fielded in my first month here asking me to explain pricing, shorting, how to make money, etc. was astounding. We all knew that we had to start from scratch, and rebuild a mechanism that was easy to use, expressive both in terms of the question one can ask and the message space in which one can answer, and provided a high level of user engagement. We have abandoned the MSR in favor of a new method that users are already finding much simpler and that requires a lower level of participation and sophistication than the usual stock market analogy.

I wish I could go into more detail. However, we need to keep a little bit of a lid on things for our upcoming launch. I can only beg your patience a little while longer, and I hope you will judge our offering worth the wait.

There was a bug in that chart which is now fixed. However the excess volatility is still there. The problem is that our early markets were created with a liquidity parameter which was too low. That is fixed with more recent markets. However we are also looking at modifying the MSR in some significant ways.

Actually, I would expect the change to improve liquidity, but the real surprise for Ed Murray is that other than his liquidity argument, I pretty much agree with him this time.

It is a better scheme than before, as the exchange will match traders’ bets more efficiently and offer price improvement when available.

As Betfair observes (and Murray notes) the downside is for traders who make a bet in error, and now find the more efficient market has matched the bet before it could be withdrawn. If this is a frequent problem for a trader, perhaps they need to exercise a little more care at the keyboard. But as the Befair announcement indicates — and this time Ed Murray is repeating the Betfair company line! — at least there is the possibility that the trader will be matched at a better price than he would have otherwise.

What’s changing?We’ve improved the code that matches bets. As well as matching backs against lays as we’ve always done, we’ll also try to match your bet against bets on other selections in the market. We‘ll give you an improvement over the price you‘ve requested where possible, and we‘ll match you against whichever bets get you the best price.

For example in a tennis market:

Roger Federer is 1.9 to back, 2.1 to lay.Rafael Nadal is 1.8 to back, 2.0 to lay.

If you try to back Federer at 1.9 or less, previously we would have matched your bet against the customer looking to lay Federer at 1.9. Both bets would have been matched at 1.9, even if you‘d asked for a shorter price. In theory we could do even better than that though: we could match you against the customer trying to back Nadal at 2.0 (backing one player at 2.0 is of course the same as laying the other player at 2.0). Our new bet matching process will see which match gets you the better price. In this case we would get you 2.0 by matching you against the Nadal backer (who is offering a better price than the layer of Federer).

When placing a new bet you will only ever be matched by the new process if doing so gives you a better price than you would otherwise have got. We will match your bet at the best price possible that’s a valid increment on Betfair’s odds ladder, as we explained in our update of 6th June.

Does this only work for 2-runner markets like tennis?No. The new matching logic works for any number of runners in a market. An example with a 2-runner market is probably easiest to understand, but the principle is the same for markets with 3 runners or more. For example if a football market looked like this:

Spain 2.3 to back, 2.5 to layGermany 3.9 to back, 4.0 to layThe Draw 2.9 to back, 3.0 to lay

Then if you want to back Spain we could match you with customers looking to back Germany and the Draw at 4.0 and 3.0 respectively, which would result in you being matched at 2.4, a better price than you would have got had we matched you against Spain layers (who are only offering 2.3).

Which markets will this affect?We’ll introduce the new code on Monday 14th July, but initially matching will be done exactly as before. As explained earlier in the year, introducing best execution across selections wasn’t possible without significant change to the existing code that matches backs and lays, so we will need verify that performance is as expected for the existing matching process before enabling the new functionality. All being well we’ll enable the new code for a small number of markets to ensure that everything is as it should be later on Monday. We’ll announce which markets on Monday. Again if all is well we’ll roll out to a wider range of markets on Tuesday.

We’d expect to match across selections on the same range of markets as we currently do:

Horse racing will not be covered for now, due to the possibility of non-runners, and the new process isn’t applicable to markets where runners can be added (for example “Next manager” markets), where runners listed might not take part (e.g. First Goalscorer) or where the runners in a particular “market” are treated independently (e.g. Accumulators).

What about bets placed in error?We’re aware of a concern that this change might make it more likely that customers would match bets placed in error, for example asking for 1.2 when you really wanted to back at 2.2. One consequence of the change we’re making is that any bet you place is more likely to get matched – making it easier to get a match is the whole idea. Being realistic though, if you had placed a bet in error like that in the past, in the vast majority of cases you would have been matched (against lays on that selection). There’ll now be far, far more circumstances where you would have been matched anyway , but instead you’ll now get a better price, than situations where your bet would have been unmatched and you might have had the chance to cancel. On average we would expect customers who place bets in error to be better off as a result.

On a related point, we’d also expect this change to make it more difficult for people who place “trap bets” to get matched (a trap bet is an offer that is only likely to be matched if another customer places a bet in error). While putting up “trap bets” is against Betfair’s terms and conditions and we close the accounts of persistent offenders, on an exchange where any customer can ask for any price it’s difficult to eradicate this practice. In most instances where a trap bet is the best price available on a selection, customers will in future be matched at better prices against bets on other selections rather than matching the trap bet.

How will the change affect liquidity?We would expect the change to be beneficial to liquidity. Obviously if we have opposing customer bets in the system that could be matched, whether on the same selection or across different selections, the best thing for liquidity is to match them.

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Further to the above, we’ll be enabling the improved matching on the following markets later today.

We held a forum Q&amp-A session in March in which we announced that we were working on an improved version of bet matching. This would allow us to match bets across selections, and to match those bets at better prices than requested where possible, as we do now when matching back bets against lay bets on the same selection. We wanted to provide customers with an update on our progress towards this.

An example of how this would work in practice:

You submit a bet request to back Roger Federer at 1.7, but there are no unmatched lay bets on Federer at 1.7 or higher to match your bet. However, we do have an unmatched customer request to back his opponent at 2.2 already on the system. The way matching works currently there are two possible outcomes:

1. your bet will remain unmatched, or2. another customer will subsequently lay your bet, and it will be matched at 1.7, the price you requested.

With the improved bet matching process we would match your request to back Federer against the customer looking to back his opponent at 2.2, and provide an improvement to the price you requested. Your bet would be matched at the best possible price that is a valid increment on Betfair’s odds ladder, in this case 1.83.

As we mentioned during the Q&amp-A, doing the necessary calculations for an individual bet on a market with only two selections is relatively simple. However bet matching has to work efficiently in much more complex situations: i.e. in markets with many runners, where bets may be partially matched, and matched against bets at more than one price. We also understand that customers would expect no deterioration in the overall performance of bet matching as a result of us adding this functionality. It’s taken us a little longer than we originally hoped to find a solution that meets all those objectives. However we’ve coded a new version of bet matching, and our performance tests on the new process indicate that it will match backs against lays and bets across selections more efficiently than the existing bet matching process.

We are now into the final few weeks of testing, and expect to be ready to introduce this improvement to the site in early July. Again as we mentioned in the Q&amp-A it was a higher priority for us to find a way to provide price improvements for customers than to resolve issues around the withdrawal of non-runners, so we don’t intend to match bets across selections in horse racing markets in the near future. We’d therefore expect most situations where we would match across selections to occur in the busiest 2- and 3-runner markets, including football and tennis. It’s a busy month ahead for both those sports, and as we believe it’s prudent not to introduce this change at peak times we’ve taken the decision to wait until Euro 2008 and Wimbledon are completed. If Wimbledon is completed on schedule, and assuming remaining testing goes to plan, we expect to make this change to the site on Monday 7th July. We will confirm this nearer the time, but wanted to give customers advance notice as we’ve previously promised.

We’ve been trialling a new process for matching customer bets recently which has prompted considerable debate among some of our customers. Some of that debate has been misinformed and we apologise for that. It is clearly our responsibility to ensure customers are given a clear understanding of what we are actually doing and, hopefully, this comprehensive communication and the forum Q&amp-A today will help explain what is happening.

The purpose of the recent change is to increase a customer’s chance of getting a bet matched. However, we recognise that the change we’ve made has been the subject of concern for some customers. In response to customer feedback, we will suspend matching bets across selections when an applicable market is turned in-play. For the time being, bets will be matched on in-play markets as they were prior to the change. Matching across selections will be reintroduced only when we can offer best execution or its equivalent. As we have explained before, the new bet matching process does not affect any Horse Racing markets.

Until recently Betfair’s bet matching process would only look to match customer back bets against lay bets on the same selection in the same market. There are often circumstances where we could improve on that, for example, where we have customer back bet requests on all selections but no suitable lay bets to match them against.

In the past those requests would have been initially unmatched, and may or may not have been subsequently matched by other customers. When Betfair first started, we used to perform this additional cross-matching service for customers. This was suspended in 2002 for purely technical reasons – we didn’t have a mechanism for matching across selections without having a negative impact on the performance of the site.

Betfair’s bet matching process is now more efficient and that allows us to reintroduce this functionality. Whilst leaving the existing logic that matches backs vs. lays unchanged, we’ve added functionality that matches bets across runners ONLY if those bets could not have been matched conventionally. At the moment, that doesn’t give us the option of providing a price improvement even where this would be theoretically possible. This is because matching across selections only happens after the conventional matching process that allows us to improve prices has completed.

We are working towards having a bet matching process in place that both allows customers to see the best prices they could have a bet cross-matched at, and to provide a price improvement where this is possible. However, that’s technically much more complex because it requires significant changes to the process that matches backs vs. lays. Understandably, before we could implement that there’s also a significant amount of testing required, both to ensure that the functionality works as expected and to ensure that the performance of the site isn’t affected, and this is taking longer than anticipated.

Clearly if bets are matched where a price improvement would theoretically be possible, but which the current process can’t provide, then matching those bets will result in Betfair accruing the difference. There’s been speculation that the motivation for the change is the short-term additional revenue for Betfair that not being able to provide price improvements would cause. That isn’t the case. The model for Betfair’s betting exchange remains to match customer bets where possible, to provide price improvements where possible, and to charge a commission on winning positions. The motivation for introducing this change is to make it easier for customers to get bets matched, and to reduce the load on the site by making it pointless for customers who use automated tools to bombard the site with traffic looking for arbitrage opportunities.

However, because we’re not currently in a position where we can improve prices when matching across selections, and to clearly demonstrate that the motivation for the change is to improve customers’ chances of having bets matched rather than any short-term profit, we’ve decided to make the following changes:

1. We have suspended, with immediate effect, matching bets across selections for in-play markets until best execution – or its equivalent – can be implemented.

2. We will shortly reintroduce bet matching across selections but ONLY where bets have been requested at prices that we couldn’t improve even if best execution was in place.

e.g. if a customer requests 2.0 to back a tennis player, and another requests 2.0 to match his opponent we will match those bets. However if we have customer requests to back those two players at 1.99 and 2.0 respectively we will not match them. Those bets will remain unmatched.

3. In the near future we will introduce functionality that both displays prices that could be matched across selections and matches them providing a price improvement wherever possible.

In every case, we will communicate any proposed change in advance of it being introduced onto the site.

Your feedback on this issue has been much appreciated and we continue to welcome your comments via the forum, our helpdesk or directly with members of our staff.

While the forum Q&amp-A is to answer questions specifically related to this topic we will hold regular forum Q&amp-A sessions covering a much wider range of topics in the very near future.

Sounds great.

Any thoughts, folks?

They didn&#8217-t clear up the issue of how and when BetFair operates on its own markets, though.